Major challenge to dependency theory was that it was injected into the global economy.

Import Substituting Industrialization In the 1960s the Republics of Korea and China changed drastically Became EOI (Export Oriented Industrialization) First it exported periphery goods but later it began to export cars and heavy machinery This stunned Dependency theories as they believed that the international economy doesnt aid periphery countries. Neoclassical model is a free-market model that says: the market determines who produces what, for how much and how long etc. State intervention is minimal to the economy. Open up to trade and investment Export should be based on comparative advantage (poor countries providing cheap labor and producing low-cost goods) One similarity between Dependency and Neoclassicism was that it was focused on export. Third Path: Export-led growth guided by the state State played a big role to build the economy Choose individual industries to rise State Guided Developmental Model (SGDM) had three critical parts: 1. Required special state. Scholars call developmental state. a. Autonomous state. Make goals without interference from major interest groups in society (unions, industry, foreigners, farmers) i. Policies are developed by State Bureaucrats b. State has to be professionalized with skilled, well educated professions. i. Bureaucrats need to have a common ideology, common goal or discipline ii. Allow policies to be far-sighted 2. Interventionist. State has major role in economy a. It controls the banking sector, the big industry and other important b. Actively/systematically intervenes in the economy c. Japans MITI: critical to Japans economic development. It used various ways. Not inherently corrupt, but must be autonomous. 3. Business-friendly: It must be on behalf of business and intervenes to create more business friendly environments. a. Investing in Innovation and R&D b. Cracking down on unions and leftists.

Policies 1. Industrial policy: Breaks with the laws of comparative advantage. The government chooses industry to take-off. a. High-tech, steel, heavy metal goods i. As the market lacks the capital, the state is the only entity that can finance these and acquire the know-how on how to make them b. With support of the government businesses can make a massive jump i. State control of the industry, especially important ones 1. Taiwan and its ship-building industry ii. Trade protection to protect domestic industries 1. Tariffs, quotas and restrictions iii. Cheap loans & investments iv. R&D to invest in (the state invests in it and the companies use it) 2. Regulate foreign capital & investment a. Encouraged but regulated foreign investments b. In strategic industries foreign companies werent allowed to buy any shares so not to allow them to buy up the companies c. Instead there was a Joint operation going on with certain advantages, like selling products on their home turf. 3. Strategic trade: Export + selective protection a. Promotes export by tax-breaks i. Need to be efficient ii. Need open economy and free trade 1. However in certain sectors they used tariffs and others to keep foreign goods away from the market This combination forced efficiency but also ensured protection of hostile takeovers. (There is a difference between a big state and a strong state. Big state might control key industries but not be forceful in other areas and vice-versa) Authoritarianism & labor repression Far sightedness without elections to worry about o With elections policies became very short sighted Development required stability for 15 or 20 years Need to keep labor costs down o Cost of production must be cheap to remain competitive o No worker benefits nor unions o Korea had very few strikes o In Taiwan strikes were outright outlawed and severely punished o In contrast: Chile & Argentine had 2000 strikes per year South Korea had 25 years of dictatorial rule Singapore had an essential one-party rule for decades

However state-led model is better at catching up than being the frontrunner. Taiwan: 1. (History). Chinas professional elite moved to the island of Formosa with all Chinas gold reserves. The Kuomintang established a harsh military dictatorship with General Chiang-Kai-shek in power. Opposition and unions were oppressed. a. There was a lot of US aid (6 billion $ in military and economic aid) b. KMT was essentially an occupying force so Taiwan was still an autonomous force c. Bureaucracy: Most of Chinas professional elite moved here so much potential was there 2. Military threat from the PRC loomed over so ROC focused a lot on the economy development and awareness. 3. Land reform was essential to create a more egalitarian society and destroy the land-owning class, thus leaving no powerful interest groups making the state the most powerful interest left. (Japanese industries and banks were taken over by the state and in the 50s constituted over 60 % of the industries.) Number of serious 4-year plan 1. The 1950s: Create a textile & plastic industry from scratch. Mostly state-led and protected by trade protections. 2. The 1960s: Open up to private investment and privatization (Export Led Growth). Less trade protections. 3. The 1980s: 50% of total investments were made by the state. Selective to what could be imported and what couldnt be important. Key Sectors were still off-limits to foreign capital. Plans in the 1960s to launch a new industry of steel and shipbuilding companies. State used massive subsidies in the electronics sector Invested heavily in R&D

Not all government plans succeeded, but performance was successful. Growth was at first 11% then 9% a year XD. From a 200$ per capita income to a 13000$ income. Nowadays most industries are located in the private sector but we most not forgot that the majority of them was state-owned at first.

Republic of Korea was similar to Taiwan. Born out of military threat and partition, the ROK enhanced coercion & investment. Land reform was implemented and the economic elite was relatively weak. Korea acquired massive economic aid. Massive US AID. In the 50s a corrupt dictatorship ruled the country. 1961 Park Chung Hee coup dtat. o Shared developmental theory o Brought skilled professionals into the bureaucracy o Reinforced by North Koreas military threat, resulting in a militarized society o Authoritarianism was the rule of the day The left was suppressed So was labor No elections at all o Gradual opening to foreign investment, but crucial domestic industries were extremely protected. o Park brought entire banking sector o Ignored the IMF and World Banks advice of going from cheap agricultural products to gradual development. Instead straight went into the heavy development of heavy industry

STEEL=POWER
It promoted the automobile industry, which was private but protected and regulated with major producers. (Scrutinized) Successful electronic investments 80s Televisions 90s PCs and semi-conductors 100$-10000$ GDP per capita The Costs of the State-led Model 1. Absence of political freedom, harsh dictatorship 2. It was difficult to correct policies as they were made for the long-term process. Corruption would become high in the long run when the old guard dies off 3. Challenges both Dependency theory and Neoclassicism

Thursday, 15th September Can the East-Asian model be generalized? 1. Context of severe military threat